Surety bond
Asset-Backed Securities glossary · Asset Backed Securities
Definition
A guaranty from an insurance company (historically a monoline) of specified bond obligations.
Surety bond in plain English
A surety bond is basically a promise from an insurance company that says, "if this bond doesn't pay what it owes, we'll cover it." Investors love that promise because it means they're leaning on the insurer's strong credit instead of worrying about the underlying loans. It's like having a wealthy, reliable co-signer on a lease — if the renter flakes, the landlord still gets paid. Historically these guarantees came from specialized insurers called "monolines" (companies that did basically only this one job), several of which famously buckled in the 2008 crisis when the guarantees they'd written turned out to be worth far less than assumed.
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